On a regional level, the U.K. FTSE 100 index (UKX) rose 1.8% to 4,202.13, the German DAX index (1876534) added 3.2% to 4,722.34 and the French CAC-40 index (PX1) moved up 2.3% to 3,052.08.

U.S. stocks rose early in the session. Asian equity markets ended lower. Read more on Asia.

Although shares in Europe started the day on a weak note, having lost ground for four straight weeks, stocks staged a recovery a few hours in.

"I think that it might be positioning ahead of what's likely to be an interesting corporate earnings season," said David Page, strategist at Investec Securities, speaking about the share gains on Monday.

UBS (UBSN)
UBS, -3.32%
shares climbed 4.4%. The bank is trying to thrash out a last-minute deal with the U.S. government to settle the high-profile tax evasion court case that had been due to start Monday. See full story.

"I think that [banking sector earnings] will be pre-eminent in people's minds just to give a flavour of how much the credit crisis is easing, or otherwise, and the implications for credit tightness as we look across the next two quarters," said Page.

"Markets have been characterized over recent weeks by increasing doubts over the sustainability of the pick-up after an inventory-led adjustment and certainly the credit story is one of the key components of that," he added.

Philips kicks off earnings season

The firm's second-quarter net profit fell 94% to 44 million euros ($61 million), from 732 million euros a year ago. However, the result exceeded market expectations as analysts had been expecting a small loss from the firm. See full story.

"This morning we had the first important earnings result, which came from Philips and which was a bit better than expected. That was positive," said Philippe Gijsels, strategist at Fortis.

Away from earnings, oil producers were on the move, with Royal Dutch Shell (RDSA)
RDS.A, -0.25%
up 2% and BP (BP)
BP, -0.25%
shares up 2.2%.

Autos also had a good session, with shares of German sportscar maker Porsche Automobile Holding (PAH3) up 9.2%.

Over the weekend, Focus reported that Volkswagen (VOW) has upped its bid for the firm, while German magazine Der Spiegel reported that Qatar has bid 7 billion euros to buy just over 25% of the firm as well as its VW options. Volkswagen shares gained 4.9%.

Buyout group Resolution (RSL), down 2.8%, said that it has had an initial approach for the life insurance firm turned down by the group's board and is considering its response.

Shares of U.K. natural gas producer Venture Production (VPC) climbed 5.5% to 829 pence after two of the firm's major shareholders said that its shares are worth at least 1,000 pence each, or significantly more than the 845 pence a share, or 1.3 billion pounds, offered by bid suitor Centrica (CNA). See full story.

On the downside, shares of Irish cider maker C&C Group (CCR) fell 16.4% after the firm corrected a trading update that it put out last week.

It said Monday that revenue fell 5% in the four months to June 30 on a constant currency basis. Last week, the firm said that revenue rose 3% in the four-month period on a constant currency basis.

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